- After Hain Celestial has been the focus of food and beverage industry takeover speculation for more than a year, it now appears Nestle may be exploring an acquisition, according to Bloomberg.
- A deal could be in both parties’ best interest, given their recent financial performance. Hain’s profit shrunk from $165 million in 2015 to $47 million in 2016 before rebounding somewhat to $67 million this year, according to company reports. Nestle, which released its third quarter earnings a month ago, said it could be facing its slowest sales growth in at least two decades.
- The report said that other U.S. based food manufacturers and buyout firms are considering a Hain purchase right now, but no decisions have been made — and the natural and organic manufacturer could still refuse any sale. Hain Celestial stock rose as much as 11% Monday after the rumors were reported, which values the company at more than $4.2 billion.
Like many of its peers, Nestle is struggling with changing consumer tastes and preferences toward healthier, organic and more natural brands. It has done its best to respond, but so far those efforts have failed to yield meaningful results.
Nestle has been under pressure from activist investor Daniel Loeb to streamline corporate operations and focus on growth ever since Loeb's Third Point hedge fund bought a $3.5 billion stake in the company in June. Third Point has outlined several changes Nestle could make to improve margins, innovate around the core business and sell non-core assets, which could involve divesting its North America confectionery and frozen foods businesses.
Since CEO Mark Schneider took Nestle's helm in January, the company has taken baby steps to update its brand portfolio. It bought plant-based food maker Sweet Earth, took a majority stake in the Blue Bottle coffee chain, and became the main investor in the $77 million round of new funding in Freshly, a provider of direct-to-consumer ready meals. Earlier this month, Nestle agreed to purchase Chameleon Cold-Brew, an organic, fair-trade manufacturer of ready-to-drink coffee and coffee concentrate products.
But closing in on a deal with Hain Celestial could be the big move Nestle needs to move the needle and hold Loeb at bay. Hain’s size and scale — it recorded sales of nearly $2.9 billion in its latest fiscal year — could help bolster Nestle’s top line. Some of Hain’s high-growth, on-trend “healthy” brands could nicely complement Nestle’s existing product portfolio too. Better-for-you baby brands Earth’s Best and Ella’s Kitchen would be a good fit for Nestle’s iconic Gerber’s brand. Dream plant-based beverage brands could join Nestle’s dairy lineup, which includes Carnation and Coffee-Mate.
Other large food manufacturers rumored to be eyeing the company for acquisition could include General Mills, Kellogg, Danone, Mondelez, Coca-Cola and PepsiCo. General Mills has proven its interest in better-for-you products in recent years, whether through acquisitions like Annie's or startup investments through its 301 INC platform. Kellogg could make a pitch since Hain could have synergies with its Kashi brand. Hain could fit well into Mondelez’s growth strategy, which bought better-for-you company Enjoy Life Foods in 2015 and now aims to generate half of total revenue from better-for-you products in the next five years.
Hain Celestial may also be actively looking for a sale. For about the last year, the company has been battling financial problems, discovering revenue irregularities in previous statements. In June, the company said it would not revise any reports, and has been releasing regular quarterly reports since August. However, the issues drew activist investor Engaged Capital to take a 9.9% stake in the company to help reinvigorate its top line. Since Engaged Capital got involved, the company has started making changes with its board of directors, but could be hoping for a sale in order to free itself of the activist investor's scrutiny.
Hain could be an attractive addition to any Big Food product portfolio, whether it’s Nestle or another food company. The natural food and beverage company’s size and consistently strong revenue growth make it a ripe acquisition target, especially as competition heats up from retailers’ better-for-you private-label brands and other large food manufacturers buy up or launch their own natural and organic food brands.